What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-21 compared with 2023-02-15 · 243 added, 357 removed, 444 unchanged (57% 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,” “Elevance Health” or the “Company” 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.

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This MD&A should be read in conjunction with our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021.

A detailed discussion of 2020 items and year-over-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.

This MD&A generally discusses 2023 and 2022 items and year-over-year comparisons between 2023 and 2022.

A detailed discussion of 2021 items and year-over-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 included in Exhibit 99.1 to our Quarterly Report on Form 10-Q for the three months ended September 30, 2023.

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

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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 across the country as AIM Specialty Health, Amerigroup, Aspire Health, Beacon, CareMore, Freedom Health, HealthLink, HealthSun, MMM, Optimum Healthcare, Simply Healthcare, Unicare and/or Wellpoint.

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

(“CarelonRx”) subsidiary, which was known as IngenioRx, Inc.

prior to January 1, 2023.

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

We also conduct business through arrangements with other BCBS licensees, as well as other strategic partners.

In addition, we serve members in numerous states as Amerigroup, Freedom Health, HealthSun, MMM, Optimum Healthcare, Simply Healthcare and/or Wellpoint.

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, in June 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 through our CarelonRx business, and other healthcare related services as Carelon Insights, Carelon Health, Carelon Behavioral Health and CareMore.

As we announced in 2022, 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 brings together our healthcare-related services and capabilities, including our formerly named Diversified Business Group and IngenioRx businesses, under a single brand name.

In 2022, we managed our operations by customer type through four reportable segments:

Commercial & Specialty Business, Government Business, CarelonRx (formerly known as IngenioRx) and Other.

As we continue our journey to evolve our business from a traditional health insurance company into a lifetime, trusted health partner, we are evaluating and making changes to how we manage our business.

This included a review of the products in each of our operating segments, which resulted in restructurings between some of our operating segments.

Therefore, our reportable segment presentation in 2023

and its composition will reflect how we began managing our operations and monitoring performance, aligning strategies and allocating resources on January 1, 2023.

As a result of these changes, beginning with our Quarterly Report on Form 10-Q for the first quarter of 2023, we will report our results in the following four reportable segments:

(i) Health Benefits, which will combine our existing Commercial & Specialty Business and Government Business segments;

(ii) our existing CarelonRx segment;

(iii) Carelon Services (our former Diversified Business Group), which will be carved out from our existing Other segment;

and (iv) Corporate and Other, which will include 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.

We expect to reclassify previously reported information to conform to the new presentation.

• Wellpoint — we are uniting select non-BCBSA licensed Medicare, Medicaid and commercial plans under the Wellpoint name;

• Carelon — this brand brings together our healthcare related services 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 resources, and made changes to our reportable segments beginning in the first quarter of 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).

During the fourth quarter of 2023, we moved our Carelon Global Solutions international businesses from the Corporate & Other reportable segment to the Carelon Services reportable segment.

All prior period reportable segment information has been reclassified for comparability to conform to the current presentation.

Our results of operations discussed throughout this MD&A are determined in accordance with generally accepted accounting principles (“GAAP”).

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

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

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

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

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We use these measures as a basis for evaluating segment performance, allocating resources, forecasting future operating periods and setting incentive compensation targets.

This information is not intended to be considered in isolation or as a substitute for income before income tax expense, net income or fully-diluted earnings per share (“EPS”) prepared in accordance with GAAP.

This information is not intended to be considered in isolation or as a substitute for income before income tax expense, net income or fully-diluted shareholders’ earnings per share (“EPS”) prepared in accordance with GAAP.

For additional details on operating gain, see our “Reportable Segments Results of Operations” discussion included in this MD&A.

For a reconciliation of reportable segment operating revenue to the amounts of total revenue included in the consolidated statements of income and a reconciliation of reportable segment operating gain to income before income tax expense, see Note 20, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Our operating revenue consists of premiums, product revenue, and administrative fees and other revenue.

Our operating revenue consists of premiums, product revenue, and service fees.

Premium revenue is generated from risk-based contracts where we indemnify our policyholders against costs for covered health and life insurance benefits.

Product revenue represents services performed by CarelonRx for unaffiliated PBM customers and includes ingredient costs (net of any rebates or discounts), including co-payments made by or on behalf of the customer, and administrative fees.

Unaffiliated PBM customers include our fee-based groups that contract with CarelonRx for PBM services and external customers outside of the health plans we own.

Administrative fees and other revenue come from fees from our fee-based customers for the processing of transactions or network discount savings realized, revenues from our Medicare processing business and revenues from other health-related businesses, including care management programs and miscellaneous other income.

Product revenue represents services performed by CarelonRx for unaffiliated pharmacy customers and includes ingredient costs (net of any rebates or discounts), including co-payments made by or on behalf of the customer, and service fees.

Unaffiliated pharmacy customers include our fee-based employer groups that contract with CarelonRx for pharmacy services and external customers outside of the health plans we own.

Service fees are generated from our fee-based customers for the processing of transactions or network discount savings realized, revenues from our Medicare processing business and revenues from other health-related businesses, including care management programs and miscellaneous other income.

Our benefit expense primarily includes costs of care for health services consumed by our risk-based members, such as outpatient care, inpatient hospital care, professional services (primarily physician care) and pharmacy benefit costs.

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and (iii) clinical health policy, such as identification and use of best clinical practices to avoid harm, identifying clinical errors and safety concerns, and identifying potential adverse drug interactions.

Our cost of products sold represents the cost of pharmaceuticals dispensed by CarelonRx for our unaffiliated PBM customers (net of rebates or discounts), including any co-payments made by or on behalf of the customer, per-claim administrative fees for prescription fulfillment and certain direct costs related to sales and administration of customer contracts.

Our selling, general and administrative expenses consist of fixed and variable costs.

Our cost of products sold represents the cost of pharmaceuticals dispensed by CarelonRx for our unaffiliated pharmacy customers (net of rebates or discounts), including any co-payments made by or on behalf of the customer, per-claim administrative fees for prescription fulfillment and certain direct costs related to sales and administration of customer contracts.

Our operating expenses consist of fixed and variable costs.

Examples of fixed costs are depreciation, amortization and certain facilities expenses.

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Commission expense generally varies with premium or membership volume.

Other variable costs, such as salaries and benefits, do not vary directly with changes in premium but are more aligned with changes in membership.

Other variable costs, such as salaries and benefits, do not vary directly with changes in premium but are more aligned with changes in membership or services provided to our customers.

The acquisition or loss of a significant block of business would likely impact staffing levels and thus, associated compensation expense.

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Several economic factors related to healthcare costs, such as regulatory mandates of coverage as well as direct-to-consumer advertising by providers and pharmaceutical companies, have a direct impact on the volume of care consumed by our members.

The potential effect of escalating healthcare costs, any changes in our ability to negotiate competitive rates with our providers and any regulatory or market-driven restrictions on our ability to obtain adequate premium rates to offset overall inflation in healthcare costs, including increases in unit costs and utilization resulting from the aging of the population and other demographics, the impact of epidemics and pandemics, as well as advances in medical technology, may impose further risks to our ability to profitably underwrite our business and may have a material adverse impact on our results of operations.

The potential effect of escalating healthcare costs, any changes in our ability to negotiate competitive rates with our providers and any regulatory or market-driven restrictions on our ability to obtain adequate premium rates to offset overall inflation in healthcare costs, including increases in unit costs and utilization resulting from the aging of the population and other demographics, the impact of epidemics and pandemics, as well as advances in medical technology and pharmaceuticals, may impose further risks to our ability to profitably underwrite our business and may have a material adverse impact on our results of operations.

We intend to expand through a combination of organic growth, strategic acquisitions and efficient use of capital in both existing and new markets.

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In addition, we believe geographic and product diversity reduces our exposure to local or regional regulatory, economic and competitive pressures and provides us with increased opportunities for growth.

We use our subsidiary CarelonRx (formerly IngenioRx) to market and offer PBM services, and we expect CarelonRx to continue to improve our ability to integrate pharmacy benefits within our medical and specialty platform.

We continued growing our government-sponsored business through organic growth and the acquisitions of MMM Holdings, LLC (“MMM”) in 2021 and Integra MLTC, Inc.

(“Integra”) in 2022.

We market and offer pharmacy services through CarelonRx and other subsidiaries, and we expect CarelonRx to continue to improve our ability to integrate pharmacy benefits within our medical and specialty platform.

We have continued growing our government-sponsored business through organic growth and acquisitions.

In all other markets, we intend to maintain our position by delivering excellent service, offering competitively priced products, providing access to high-quality provider networks and effectively capitalizing on the brand strength of the Blue Cross and Blue Shield names and marks.

For additional information about our business and reportable segments, see Part I, Item 1 “Business” and Note 20, “Segment Information” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

The COVID-19 pandemic continues to evolve, putting pressure on the healthcare system, and it has impacted, and may continue to impact, our membership, benefit expense and member behavior.

The full extent of the impact of the COVID-19 pandemic will depend on future developments, which remain 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 the impact of and our risks and trends related to the COVID-19 pandemic, see “Business Trends” and Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.

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 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.

In 2023, we made the decision to expand our participation in the Individual state- or federally-facilitated marketplaces (the “Public Exchange”) for 2024.

For 2024, we are offering Individual Public Exchange products in 141 of the 143 rating regions in which we operate, in comparison to 138 of the 143 rating regions in 2023.

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 CarelonRx 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.

CarelonRx 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 that 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.

CarelonRx 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 all core pharmacy services, such as home delivery and specialty pharmacies, claims adjudication, formulary management, pharmacy networks, rebate administration, a prescription drug database and member services.

CarelonRx delegates certain core pharmacy services to CVS, pursuant to the CVS Agreement that is set to terminate on December 31, 2025.

CarelonRx also operates a specialty pharmacy and beginning in 2024, will assume responsibility for pharmacy mail order front-end intake and member services.

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 our estimate of normal levels, based on historical utilization patterns.

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

Product pricing in our Commercial & Specialty Business segment remains competitive.

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.

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.

The Patient Protection and Affordable Care Act (the “ACA”) imposed an annual Health Insurance Provider Fee (“HIP Fee”) on health insurers that write certain types of health insurance on U.S.

We priced our affected products to cover the impact of the HIP Fee when it was in effect.

The HIP Fee was in effect for 2020 but was permanently repealed beginning in 2021.

Product pricing remains competitive.

Medical Cost Trends:

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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.

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

The Omicron variant increased confirmed COVID-19 cases to significant levels at the end of 2021 and the beginning of 2022.

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

concurrently, non-COVID-19 healthcare utilization recovered from lower levels earlier in the year.

Omicron sub-variant viruses as well as costs associated with updated bivalent vaccinations drove modest increases in COVID-19 related healthcare expenses in the second half of 2022, but the expected paid claims impact for the second half of 2022 are significantly lower than the winter surge experienced in each of the prior two years.

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” of this Annual Report on Form 10-K.

Regulatory Trends and Uncertainties

With the declaration of COVID-19 as a public health emergency (“PHE”), 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:

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

financial support to healthcare providers;

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

The 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 may begin removing ineligible beneficiaries from their Medicaid programs starting April 1, 2023.

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

Under the Consolidated Appropriations Act of 2023, Congress decoupled Medicaid eligibility redeterminations from the Public Health Emergency initially declared in January 2020 relating to COVID-19 (the “PHE”).

As a result, states were permitted to begin removing ineligible beneficiaries from their Medicaid programs starting April 1, 2023, and the majority of our Medicaid markets began doing so as of June 30, 2023.

This process is anticipated to take up to 14 months to complete, although most states are expected to complete the redetermination process by June 30, 2024.

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 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.

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;

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

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

The 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 “2021 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 2021 Appropriations Act applicable to us have varying effective dates, some of which were effective in December 2021 and during 2022, and others of which have been extended into 2023 since the enactment of the 2021 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 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.

Since its enactment in 2010, 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.

The requirements of the 2021 Appropriations Act applicable to us had varying effective dates, some of which were effective in December 2021 and during 2022, and others which were extended into 2023 since the enactment of the 2021 Appropriations Act.

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

Departments of Health and Human Services, Labor and Treasury required us in 2022 to begin disclosing 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 were 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.

Effective January 1, 2024, this requirement has expanded to include all items and services.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended (collectively, the “ACA”), continues to 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 that could cause actual results to differ materially from those contained in forward-looking statements made in this Annual Report on Form 10-K, see Part I, Item 1 “Business — Regulation ” and Part I, Item 1A “Risk Factors.”

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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 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, an independent licensee of the BCBSA that provides healthcare plans to the Individual, Group, Medicaid and Medicare markets, primarily in the State of Louisiana.

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.

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 November 9, 2022, we announced our entrance into an agreement with CarepathRx Aggregator, LLC to acquire its specialty pharmacy division, which includes BioPlus Parent, LLC (“BioPlus”) and subsidiaries.

BioPlus is one of the largest independent specialty pharmacy organizations in the United States and 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.

The acquisition closed on February 15, 2023, and initial purchase accounting has not been finalized.

On May 5, 2022, we completed our acquisition of 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, including 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 II, Item 8 of this Annual Report on Form 10-K.

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 quarters of 2022 and 2021, we identified additional office space reductions and related fixed asset impairments due to the continuing COVID-19 pandemic and recorded net charges of $39 and $202, respectively, in selling, general and administrative expenses.

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 18, “Leases,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

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 our 2024 Star ratings in October 2023, which will be used to determine our Medicare Advantage plans’ Star quality bonus payments beginning in 2025.

Based on our 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 our membership at September 1, 2022.

This change in our 2024 Star ratings is expected to impact our Star quality bonus payments and plan level rebates beginning in 2025.

We expect a reduction to our 2025 operating revenue of approximately $500, net of offsets from contracting provisions due to this change in Star ratings.

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

On January 4, 2024, we announced our entrance into an agreement to acquire Paragon Healthcare, Inc., a company providing infusion services and injectable therapies through its omnichannel model of ambulatory infusion centers, home infusion pharmacies, and other specialty pharmacy services.

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.

The acquisition is expected to close in the first half of 2024 and is subject to standard closing conditions and customary approvals.

On December 31, 2023, we entered into an agreement to acquire Centers Plan for Healthy Living LLC and Centers for Specialty Care Group IPA, LLC (“Centers”).

Centers is a managed long-term care plan that serves New York state Medicaid and dually-eligible Medicaid/Medicare members, enabling adults with long-term care needs and disabilities to live safely and independently in their own home.

The acquisition is expected to close in the third quarter of 2024 and is subject to standard closing conditions and customary approvals.

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 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.

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 aim to improve the lives of the people we serve.

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, or 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 vision to be an innovative, valuable, and inclusive healthcare partner as we bring our innovative whole-health solutions to BCBSLA’s members.

The acquisition is subject to closing conditions and approvals.

For additional information, see Note 3, “Business Acquisitions and Divestitures,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Litigation Matters

plaintiffs representing a putative nationwide class of health plan subscribers (the “Subscriber Settlement Agreement”), which agreement required the Court’s approval to become effective.

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.

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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 was previously accrued in 2020.

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

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

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

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

In October 2023, the Eleventh Circuit affirmed the Final Approval Order.

Petitions for rehearing filed by certain appellants in November 2023 and December 2023 remain pending.

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.

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Selected Operating Performance

During the year ended December 31, 2022, total medical membership increased by 2.2 million, or 4.8%.

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

During the year ended December 31, 2023, total medical membership decreased by 0.6 million, or 1.2%.

The decrease in medical membership was driven primarily by attrition in Medicaid due to the resumption of eligibility redeterminations and declines in our Employer Group risk-based business, partially offset by growth in BlueCard, Individual Public Exchange health plans and Medicare Advantage membership.

Operating revenue for the year ended December 31, 2023 was $170,209, an increase of $14,549, or 9.3%, from the year ended December 31, 2022.

The increase in operating revenue was primarily driven by higher premium revenue in our Medicaid business due to organic 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 CarelonRx segment, resulting from growth in membership and higher script volume.

Net income for the year ended December 31, 2022 was $6,019, a decrease of $76, or 1.2%, from the year ended December 31, 2021.

The decrease in net income was primarily due to realized 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.

These items were partially offset by operating gain increases in all of our business segments.

The increase in operating revenue was primarily driven by higher premium revenues in our Health Benefits business resulting from premium rate increases 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 income for the year ended December 31, 2023 was $5,991, an increase of $103, or 1.7%, from the year ended December 31, 2022.

The increase in net income was primarily due to higher premium revenues in our Health Benefits business resulting from premium rate increases 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.

These increases were partially offset by the business optimization charges recorded in the third quarter of 2023.

Our fully-diluted shareholders’ earnings per share (“EPS”) for the year ended December 31, 2023 was $25.22, an increase of $0.94, or 3.9%, from the year ended December 31, 2022.

Our diluted shares for the year ended December 31, 2023 were 237.4, a decrease of 5.4, or 2.2%, compared to the year ended December 31, 2022.

The increase in EPS resulted from lower average shares outstanding in 2022, partially offset by the decrease in net income.

The increase in EPS resulted from fewer diluted shares outstanding, as well as increased shareholders’ net income.

Operating cash flow for the year ended December 31, 2023 was $8,061, or approximately 1.3 times net income.

Operating cash flow for the year ended December 31, 2022 was $8,399, or approximately 1.4 times net income.

The slight increase in operating cash flow was primarily due to higher net income in 2022, when adjusted for the impact of investment losses and gains, partially offset by the timing of working capital changes and the payment pursuant to the Subscriber Settlement Agreement made in September 2022.

The decrease in operating cash flow was primarily due to the timing of working capital changes, partially offset by higher net income in 2023, when excluding the non-cash impact of the business optimization charges recorded in the third quarter of 2023, as well as the non-recurrence of the Subscriber Settlement Agreement payment made in September 2022.

Our medical membership includes the following customer types:

Individual, Group risk-based, Group fee-based, BlueCard ® , Medicare, Medicaid and our Federal Employees Health Benefits (“FEHB”) Program.

Individual, Employer Group risk-based, Employer Group fee-based, BlueCard ® , Medicare, Medicaid and our Federal Employees Health Benefits (“FEHB”) Program.

We refer to members in our service areas licensed by the BCBSA as our BCBS-branded, or Anthem BCBS, business.

Non-BCBS-branded business refers to members in our non-BCBS-branded, or Wellpoint plans, which include Amerigroup, Freedom Health, HealthSun, MMM, Optimum Healthcare and Simply Healthcare plans, as well as HealthLink and UniCare members.

Non-BCBS-branded business refers to members in our non-BCBS-branded, or Wellpoint plans, which include Amerigroup, Freedom Health, HealthSun, MMM, Optimum Healthcare and Simply Healthcare plans.

In addition to the above medical membership, we also serve customers who purchase one or more of our other products or services that are often ancillary to our health business.

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Unsubsidized Individual customers are generally more sensitive to product pricing and, to a lesser extent, the configuration of the network and the efficiency of administration.

Customer turnover is generally higher with Individual as compared to Group risk-based.

Customer turnover is generally higher with Individual as compared to Employer Group risk-based.

Individual business accounted for 2.2%, 1.7% and 1.7% of our medical members at December 31, 2023, 2022 and 2021, respectively.

• Group risk-based consists of employer customers who purchase products on a full-risk basis, which are products for which we charge a premium and indemnify our policyholders against costs for health benefits.

Group risk-based accounts include Local Group customers and National Accounts.

• Employer Group risk-based consists of employer customers who purchase products on a full-risk basis, which are products for which we charge a premium and indemnify our policyholders against costs for health benefits.

Employer Group risk-based accounts include Local Group customers and National Accounts.

Local Group consists of those employer customers with less than 5% of eligible employees located outside of the headquarter state, as well as customers with more than 5% of eligible employees located outside of the headquarter state with up to 5,000 eligible employees.

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Some exceptions are allowed based on broker and consultant relationships.

Group risk-based accounts are generally sold through brokers or consultants who work with industry specialists from our in-house sales force and are offered both on and off the Public Exchanges.

Group risk-based accounted for 8.4%, 8.8% and 8.9% of our medical members at December 31, 2022, 2021 and 2020, respectively.

• Group fee-based customers represent employer groups, Local Group, including UniCare members, and National Accounts, who purchase fee-based products and elect to retain most or all of the financial risk associated with their employees’ healthcare costs.

Employer Group risk-based accounts are generally sold through brokers or consultants who work with industry specialists from our in-house sales force and are offered both on and off the Public Exchanges.

Employer Group risk-based accounted for 8.0%, 8.4% and 8.8% of our medical members at December 31, 2023, 2022 and 2021, respectively.

• Employer Group fee-based customers represent employer groups, Local Group, and National Accounts, who purchase fee-based products and elect to retain most or all of the financial risk associated with their employees’ healthcare costs.

Some fee-based customers choose to purchase stop loss coverage to limit their retained risk.

Group fee-based accounts are generally sold through independent brokers or consultants retained by the customer working with our in-house sales force.

Group fee-based accounted for 42.4%, 42.7% and 45.5% of our medical members at December 31, 2022, 2021 and 2020, respectively.

Employer Group fee-based accounts are generally sold through independent brokers or consultants retained by the customer working with our in-house sales force.

Employer Group fee-based accounted for 43.1%, 42.4% and 42.7% of our medical members at December 31, 2023, 2022 and 2021, respectively.

• BlueCard ® host customers represent enrollees of Blue Cross and/or Blue Shield plans not owned by Elevance Health who receive healthcare services in our BCBSA licensed markets.

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Host members are generally members who reside in or travel to a state in which an Elevance Health subsidiary is the Blue Cross and/or Blue Shield licensee and who are covered under an employer-sponsored health plan issued by a non-Elevance Health controlled BCBSA licensee (the “home plan”).

We perform certain functions, including claims pricing and administration, for BlueCard ® members, for which we receive administrative fees from the BlueCard ® members’ home plans.

We perform certain functions, including claims pricing and administration, for BlueCard ® members, for which we receive service fees from the BlueCard ® members’ home plans.

Other administrative functions, including maintenance of enrollment information and customer service, are performed by the home plan.

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Medicare Advantage plans provide Medicare beneficiaries with a managed care alternative to traditional Medicare and often include a Medicare Part D benefit.

In addition, our

Medicare Advantage SNPs provide tailored benefits to special needs individuals who are institutionalized or have severe or disabling chronic conditions and to dual-eligible customers, who are low-income seniors and persons under age 65 with disabilities.

In addition, our Medicare Advantage SNPs provide tailored benefits to special needs individuals who are institutionalized or have severe or disabling chronic conditions and to dual-eligible customers, who are low-income seniors and persons under age 65 with disabilities.

Medicare Advantage SNPs are coordinated care plans specifically designed to provide targeted care, covering all the healthcare services considered medically necessary for members and often providing professional care coordination services, with personal guidance and programs that help members maintain their health.

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Medicare Part D offers a prescription drug plan to Medicare and MMP beneficiaries.

MMP, which was established as a result of the passage of the ACA, is a demonstration program focused on serving members who are dually eligible for Medicaid and Medicare.

MMP, which was established as a result of the passage of the ACA, is focused on serving members who are dually eligible for Medicaid and Medicare.

Medicare Supplement and Medicare Advantage products are marketed in the same manner, primarily through independent agents and brokers.

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FEHB business accounted for 3.5%, 3.4% and 3.6% of our medical members at December 31, 2023, 2022 and 2021, respectively.

The following table presents our medical membership by reportable segment and customer type as of December 31, 2022, 2021 and 2020.

Also included below is other membership by product.

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

December 31 2022 vs.

(In thousands) 2022 2021 2020 Change % Change Change % Change

Medical Membership

Commercial & Specialty Business:

The following table presents our medical membership by customer type as of December 31, 2023, 2022 and 2021.

Also included below is 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.

The 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.

2023 2022 2021 Change % Change Change % Change

Medical Membership (in thousands)

Individual 1,025 789 759 236 29.9 % 30 4.0 %

Group Risk-Based 3,988 4,006 3,799 (18) (0.4) % 207 5.4 %

Employer Group Risk-Based 3,756 3,988 4,006 (232) (5.8) % (18) (0.4) %

Commercial Risk-Based 4,781 4,777 4,765 4 0.1 % 12 0.3 %

6,838 6,462 6,178 376 5.8 % 284 4.6 %

Group Fee-Based 20,174 19,395 19,551 779 4.0 % (156) (0.8) %

Employer Group Fee-Based 20,227 20,174 19,395 53 0.3 % 779 4.0 %

Commercial Fee-Based 27,065 26,636 25,573 429 1.6 % 1,063 4.2 %

Total Commercial & Specialty Business 31,413 30,338 30,089 1,075 3.5 % 249 0.8 %

Government Business:

Medicare Advantage 2,047 1,977 1,859 70 3.5 % 118 6.3 %

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Federal Employees Health Benefits 1,642 1,623 1,625 19 1.2 % (2) (0.1) %

Total Government Business 16,118 15,036 12,836 1,082 7.2 % 2,200 17.1 %

Total Medical Membership 46,961 47,531 45,374 (570) (1.2) % 2,157 4.8 %

Other Membership

Other Membership (in thousands)

Life and Disability Members 4,629 4,834 4,782 (205) (4.2) % 52 1.1 %

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Medicare Part D Standalone Members 260 271 438 (11) (4.1) % (167) (38.1) %

Other Metrics (in millions)

CarelonRx Quarterly Adjusted Scripts

78.0 82.0 (4.0) (4.9) %

Carelon Services Consumers Served

103.3 105.0 (1.7) (1.6) %

December 31, 2023 Compared to December 31, 2022

Medical Membership

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

Our Government Business segment’s 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.

Our Commercial & Specialty Business segment growth included Group fee-based membership increases due to sales exceeding lapses and positive in-group changes.

BlueCard ® membership increased due to 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.

Total medical membership declined during the twelve months ended December 31, 2023.

This was driven primarily by attrition in Medicaid due to the resumption of eligibility redeterminations and declines in our Employer Group risk-based business, partially offset by growth in BlueCard, Individual Public Exchange health plans and Medicare Advantage membership.

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 declines in our life membership.

Dental membership increased primarily due to new sales in our Group risk-based accounts and penetration increases in our 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 decreased primarily due to lapses associated with our Employer Group risk-based accounts.

Dental membership increased primarily due to favorable sales in our FEHB, Individual and National businesses, partially offset by lapses in our Employer Group risked-based accounts.

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 Individual and Medicare Advantage businesses.

Consolidated Results of Operations

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Years Ended December 31 2023 vs.

2022 2022 vs.

2023 2022 2021 $ % $ %

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Net investment income 1,825 1,485 1,378 340 22.9 % 107 7.8 %

1,485 1,378 877 107 7.8 % 501 57.1 %

Net (losses) gains on financial instruments (694) (550) 318 (144) 26.2 % (868) (273.0) %

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17,293 13,035 10,895 4,258 32.7 % 2,140 19.6 %

Selling, general and administrative expense

17,686 15,914 17,450 1,772 11.1 % (1,536) (8.8) %

Operating expense 20,087 17,700 15,918 2,387 13.5 % 1,782 11.2 %

Other expense 1

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Net income 5,991 5,888 6,149 103 1.7 % (261) (4.2) %

Net loss attributable to noncontrolling interests 6 9 — (3) (33.3) % 9 — %

Net (gain) loss attributable to noncontrolling interests

(4) 6 9 (10) NM (3) NM

Shareholders’ net income $ 5,987 $ 5,894 $ 6,158 $ 93 1.6 % $ (264) (4.3) %

Average diluted shares outstanding 237.4 242.8 246.8 (5.4) (2.2) % (4.0) (1.6) %

Diluted shareholders' net income per share $ 24.81 $ 24.73 $ 17.98 $ 0.08 0.3 % $ 6.75 37.5 %

Diluted shareholders’ earnings per share

$ 25.22 $ 24.28 $ 24.95 $ 0.94 3.9 % $ (0.67) (2.7) %

Effective tax rate 22.3 % 22.5 % 23.1 % (20) bp 3

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87.0 % 87.6 % 87.4 % (60) bp 3

Selling, general and administrative expense ratio 4

Operating expense ratio 4

11.8 % 11.4 % 11.6 % 40 bp 3

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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.

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

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Total operating revenue increased primarily as a result of higher premium revenue in our Medicaid business due to organic 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 our 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 CarelonRx 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.

We had net losses on financial instruments in 2022, as compared to net gains in 2021, as a result of increased net losses on the sale of fixed maturity securities, reduced gains on the sale of equity securities and lower net gains on other invested assets.

These losses were partially offset by lower mark-to-market losses on equity securities still held.

Benefit expense increased primarily due to healthcare costs associated with organic membership growth in our Medicaid and Medicare businesses and the acquisition of MMM in the second quarter of 2021.

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

Our benefit expense ratio decreased slightly primarily due to the realignment during 2022 of certain quality improvement costs, from benefit expenses to administrative expenses, due to regulatory clarification.

This decline was partially offset by 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 CarelonRx for our unaffiliated PBM customers.

Total operating revenue increased primarily as a result of higher premium revenues in our Health Benefits business resulting from premium rate increases 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 lower dividends on equity securities.

Net losses on financial instruments increased due to increased losses on other invested assets, partially offset by higher gains on marketable equity securities.

Benefit expense increased primarily due to medical cost trends.

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

Cost of products sold reflects the cost of pharmaceuticals dispensed by CarelonRx for our unaffiliated pharmacy 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, partially offset by lower business optimization charges in 2022 as compared to 2021.

Our selling, general and administrative expense ratio decreased primarily due to operating revenue growth in 2022 and lower business optimization charges in 2022 as compared to 2021, partially offset by increased costs to support membership growth and the impact of the realignment of certain quality improvement costs described above.

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

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, as well as expenses incurred for anticipated future growth.

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

Other expense increased primarily due to increased interest expense and increased amortization of other intangible assets.

Interest expense increased as we issued additional debt at higher interest rates.

The amortization of intangible assets increased due to recent acquisitions as well as 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 10, "Goodwill and Other Intangible Assets" of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K.

Our effective income tax rate decreased primarily due to the impact of geographic changes in our mix of earnings in 2022.

Our effective income tax rate decreased from 22.5% to 22.3%, primarily due to the impact of geographic changes in our mix of earnings in 2023.

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

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The following table presents a summary of our reportable segment financial information for the years ended December 31, 2023, 2022 and 2021:

Years Ended December 31 2022 vs.

Years Ended December 31 Change

2022 2022 vs.

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Operating Revenue

Commercial & Specialty Business

$ 41,674 $ 38,809 $ 36,699 $ 2,865 7.4 % $ 2,110 5.7 %

Government Business 96,810 82,919 71,572 13,891 16.8 % 11,347 15.9 %

Health Benefits $ 148,571 $ 138,484 $ 121,728 $ 10,087 7.3 % $ 16,756 13.8 %

CarelonRx 33,835 28,526 25,431 5,309 18.6 % 3,095 12.2 %

Other 13,294 10,250 6,057 3,044 29.7 % 4,193 69.2 %

Carelon Services 14,147 12,860 10,130 1,287 10.0 % 2,730 26.9 %

Corporate & Other 479 399 95 80 20.1 % 304 320.0 %

Eliminations (26,823) (24,609) (20,441) (2,214) 9.0 % (4,168) 20.4 %

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Operating Gain (Loss)

Commercial & Specialty Business 1

Health Benefits 1

$ 6,888 $ 6,022 $ 5,850 $ 866 14.4 % $ 172 2.9 %

Government Business 2

1,975 1,868 1,684 107 5.7 % 184 10.9 %

Carelon Services 3

680 535 187 145 27.1 % 348 186.1 %

354 (9) (126) 363 NM 117 NM

Corporate & Other 4

(1,044) (142) (162) (902) 635.2 % 20 (12.3) %

Operating Margin

Commercial & Specialty Business

7.0 % 7.1 % 7.3 % (10)bp 5

Government Business 3.4 % 3.7 % 3.4 % (30)bp 5

Health Benefits 4.6 % 4.3 % 4.8 % 30 bp 5

CarelonRx 5.8 % 6.5 % 6.6 % (70) bp 5

NM Not meaningful.

1 Includes expenses of $20 for business optimization initiatives in 2022;

$106 for business optimization initiatives in 2021;

$311 for business optimization initiatives and $524 for the BCBSA Litigation in 2020.

2 Includes expenses of $16 for business optimization initiatives in 2022;

$47 for business optimization initiatives in 2021;

$205 for business optimization initiatives and $24 for the BCBSA Litigation in 2020.

3 Includes expenses of $2 for business optimization initiatives in 2021;

$4 for business optimization initiatives in 2020.

Carelon Services 4.8 % 4.2 % 1.8 % 60 bp 5

1 Includes expenses of $36 for business optimization initiatives in 2022 and $153 for business optimization initiatives in 2021.

2 Includes expenses of $1 for business optimization initiatives in 2021.

$32 for business optimization initiatives in 2021;

$133 for business optimization initiatives in 2020.

3 Includes expenses of $5 for business optimization initiatives in 2022 and $33 for business optimization initiatives in 2021.

4 Includes expense of $753 for business optimization initiatives in 2023 and (credit) of $(2) for business optimization initiatives in 2022.

5 bp = basis point;

one hundred basis points = 1%.

The following table summarizes Health Benefits operating revenues by Commercial, Medicare, Medicaid and FEHB lines of business for the years ended December 31, 2023, 2022 and 2021:

Years Ended December 31 Change

2022 2022 vs.

2023 2022 2021 $ % $ %

Health Benefits Operating Revenue

Commercial $ 43,266 $ 41,674 $ 38,809 $ 1,592 3.8 % $ 2,865 7.4 %

Medicare 35,067 31,604 26,611 3,463 11.0 % 4,993 18.8 %

Medicaid 56,601 52,886 44,106 3,715 7.0 % 8,780 19.9 %

13,637 12,320 12,202 1,317 10.7 % 118 1.0 %

Total Health Benefits operating revenues $ 148,571 $ 138,484 $ 121,728 $ 10,087 7.3 % $ 16,756 13.8 %

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

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.

The increase in operating gain was primarily due to improved medical underwriting performance in our Commercial risk-based business and reduced business optimization charges in 2022 as compared to 2021.

These items were partially offset by increased costs to support membership growth.

Government Business

Operating revenue increased primarily due to higher premium revenue in our Medicaid business, including due to organic membership growth from the continued temporary suspension of Medicaid eligibility recertification during the

COVID-19 pandemic, the acquisition of MMM at the end of the second quarter of 2021, 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 contributed to higher premium revenue.

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

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

Operating revenue increased as a result of growth in membership and higher script volume.

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

Operating revenue increased primarily due to higher revenue for expanded services performed by Carelon Services for our Commercial & Specialty Business segment in 2022 and the acquisition of myNEXUS 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 in 2022.

The increase in operating gain was driven by improved performance in Carelon Services, the acquisition of myNEXUS in the second quarter of 2021, and a decline in unallocated corporate expenses in 2022.

Health Benefits

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 higher prescription volumes associated with growth in external pharmacy members served and the acquisition of BioPlus in the first quarter of 2023.

The increase in operating gain was primarily a result of higher prescription volumes associated with growth in external pharmacy members served and the acquisition of BioPlus in the first quarter of 2023, partially offset by lower service fees and expenses incurred for anticipated future growth.

Carelon Services

Operating revenue increased primarily due to the continued expansion of our 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 continued expansion of our post-acute care services and improved performance in our medical management business, partially offset by medical cost trends.

Corporate & Other

The increase in operating loss was primarily due to the business optimization charges recorded in the third quarter of 2023, as well as an increase in unallocated corporate expenses.

Critical Accounting Policies and Estimates

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Application of GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes and within this MD&A.

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, which are discussed below.

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, goodwill and other intangible assets and investments, which are discussed below.

Our other significant accounting policies are summarized in Note 2, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

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Under this process, historical paid claims data is formatted into “claim triangles,” which compare claim incurred dates to the dates of claim payments.

This information is analyzed to create “completion factors” that represent the average percentage of total incurred claims that have been paid through a given date after being incurred.

This information

is analyzed to create “completion factors” that represent the average percentage of total incurred claims that have been paid through a given date after being incurred.

Completion factors are applied to claims paid through the period-end date to estimate the ultimate claim expense incurred for the period.

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rather, they are projected by estimating the claims expense for those months based on recent claims expense levels and healthcare trend levels (“trend factors”).

Because the reserve methodology is based upon historical information, it must be adjusted for known or suspected operational and environmental changes.

These adjustments are made by our actuaries based on their knowledge and their estimate of emerging impacts to benefit costs and payment speed.

Circumstances to be considered in developing our best estimate of reserves include changes in 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.

A comparison of prior period liabilities to re-estimated claim liabilities based on subsequent claims development is also considered in making the liability determination.

In our comparison to prior periods, the methods and assumptions are not changed as reserves are recalculated;

Our reserve methodology, which relies upon historical information, must be adjusted to account for known or suspected operational and environmental changes.

Adjustments are carried out by our actuaries, drawing on expert knowledge and taking into account their estimate of emerging impacts to benefit costs and payment speed.

Factors such as changes in levels of utilization, unit costs, business mix, benefit plan designs, provider reimbursements, processing system modifications, claim inventory levels, claim processing and submission patterns, and operational changes resulting from business combinations are considered when developing our reserve estimates.

We also compare prior period liabilities to revised claim liabilities based on subsequent claim development.

In these comparisons, methods and assumptions remain constant as reserves are recalculated;

rather, the availability of additional paid claims information drives changes in the re-estimate of the unpaid claim liability.

To the extent appropriate, changes in such development are recorded as a change to current period benefit expense.

We had increased estimation uncertainty on our incurred but not reported liability at December 31, 2022 and December 31, 2021.

Slowdowns in claims submission patterns and increases in utilization levels for COVID-19 testing and treatment are the primary factors that lead to the increased estimation uncertainty.

We regularly review and set assumptions regarding cost trends and utilization when initially establishing claim liabilities.

We continually monitor and adjust the claims liability and benefit expense based on subsequent paid claims activity.

If it is determined that our assumptions regarding cost trends and utilization are materially different than actual results, our income statement and financial position could be impacted in future periods.

Adjustments of prior year estimates may result in additional benefit expense or a reduction of benefit expense in the period an adjustment is made.

Further, due to the considerable variability of healthcare costs, adjustments to claim liabilities occur each period and are sometimes significant as compared to the net income recorded in that period.

Prior period development is recognized immediately upon the actuary’s judgment that a portion of the prior period liability is no longer needed or that an additional liability should have been accrued.

That determination is made when sufficient information is available to ascertain that the re-estimate of the liability is reasonable.

Although there are many factors that are used as a part of the estimation of our medical claims payable liability, the two key assumptions having the most significant impact on our incurred but not paid claims liability as of December 31, 2022 were the completion and trend factors.

As discussed above, 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.

On a regular basis, we review cost trends and utilization assumptions set upon initial establishment of claim liabilities.

We utilize subsequent paid claims activity to monitor and continuously adjust the claims liability and benefit expense.

If actual results are determined to be materially different than assumptions regarding cost trends and utilization, future periods of our income statement and overall financial position could be impacted.

Adjustments made to prior year estimates may result in either an additional benefit expense or a reduction of benefit expense in the period the adjustment is made.

The variability of healthcare costs necessitates that claim liabilities be adjusted each period and are sometimes significant compared to the net income recorded in that period.

An actuary’s judgment that a portion of the prior period liability is no longer needed or that an additional liability should have been accrued triggers the immediate recognition of prior period development.

Once sufficient information is available to ascertain that the re-estimate of the liability is reasonable, the determination is made.

While numerous factors contribute to our medical claims payable liability estimation, the two assumptions having the most significant impact on our incurred but not paid claims liability as of December 31, 2023, were the completion and trend factors.

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

There is variation in the reasonable choice of completion factors by duration for durations of three months through twelve months where the completion factors have the most significant impact.

As previously discussed, completion factors tend to be less reliable for the most recent months and therefore are not specifically utilized for months one and two.

In our analysis for the claim liabilities at December 31, 2022, the variability in months three to five was estimated to be between 40

and 90 basis points, while months six through twelve have much lower estimated variability ranging from 0 to 30 basis points.

In our analysis for the claim liabilities at December 31, 2023, the variability in months three to five was estimated to be between 40 and 90 basis points, while months six through twelve have much lower estimated variability ranging from 0 to 30 basis points.

The difference in completion factor assumptions results in variability of 2%, or approximately $289, in the December 31, 2023 incurred but not paid claims liability, depending on the completion factors chosen.

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In our analysis for the period ended December 31, 2023, there was a 330 basis point differential in the high and low trend factors.

This range of trend factors would imply variability of 3%, or approximately $522, in the incurred but not paid claims liability, depending upon the trend factors used.

This range of trend factors would imply variability of 3%, or approximately $545, in the incurred but

not paid claims liability, depending upon the trend factors used.

Because historical trend factors are often not representative of current claim trends, the trend experience for the most recent six to nine months, plus knowledge of recent events likely affecting current trends, have been taken into consideration in establishing the incurred but not paid claims liability at December 31, 2023.

The COVID-19 pandemic continues to have an impact on claim costs for recent dates of service, which could have an influence on our trend factors.

We will continue to monitor emerging experience in order to better understand the possible implications to our reserves.

See Note 12, “Medical Claims Payable,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for a reconciliation of the beginning and ending balance for medical claims payable for the years ended December 31, 2023, 2022 and 2021.

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Prior years redundancies” may be offset as we establish the estimate of “Net incurred medical claims:

Current year.” Our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for our claims.

Current year”, or as we establish liabilities for premium refunds based upon the minimum medical loss ratio (“MLR”), the relative health risk of members, and other contractual or regulatory requirements.

Our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for our claims.

When we recognize a release of the redundancy, we disclose the amount that is not in the ordinary course of business, if material.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 88.0% for 2023, 87.3% for 2022 and 87.8% for 2021.

This ratio serves as an indicator of claims processing speed whereby 2022 claims were processed at a slightly slower speed than 2021 and 2020.

This ratio serves as an indicator of claims processing speed whereby 2023 claims were processed at a similar speed to 2022 and 2021.

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

For the year ended December 31, 2022, this metric was 7.0%, largely driven by favorable trend factor development at the end of 2021.

For the year ended December 31, 2021, this metric was 18.1%, reflecting the estimation uncertainty due to COVID-19 at the end of 2020, and was largely driven by favorable trend factor development at the end of 2020 as well as favorable completion factor development from 2020.

For the year ended December 31, 2023, this metric was 11.4%, largely driven by favorable trend factor development at the end of 2022 as well as favorable completion factor development from 2022.

For the year ended December 31, 2022, this metric was 7.0% and was largely driven by favorable trend factor development at the end of 2021.

We calculate the percentage of prior year redundancies in the current year 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.

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

For the year ended December 31, 2023, this metric was 1.4%, which was calculated using the redundancy of $1,571.

This metric was 0.9% for 2022 and 2.0% for 2021.

We believe these metrics support the reasonableness of our estimates.

The 2021 metric was impacted by the estimation uncertainty due to COVID-19.

the difference between “net incurred medical claims – current year” for the year shown and “net incurred medical claims – prior years redundancies” for the immediately following year):

The following table shows the variance between total net incurred medical claims as reported in Note 12, “Medical Claims Payable,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for each of 2022 and 2021 and the incurred claims for such years had it been determined retrospectively (computed as the difference between “net incurred medical claims – current year” for the year shown and “net incurred medical claims – prior years redundancies” for the immediately following year):

Years Ended December 31

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Variance to total net incurred medical claims, as reported 0.6 % (0.8) %

Given that our business is primarily short tailed (which means that medical claims are generally paid within twelve months of the member receiving service from the provider), the variance to total net incurred medical claims, as reported above, is used to assess the reasonableness of our estimate of ultimate incurred medical claims for a given calendar year with the benefit of one year of experience.

the benefit of one year of experience.

We expect that substantially all of the development of the 2023 estimate of medical claims payable will be known during 2024.

The 2021 variance to total net incurred medical claims, as reported of (0.8)% was less than the 2020 percentage of 1.3%.

This was primarily driven by the fact that the change in the prior year redundancy reported for 2021 as compared to 2020 was less than the change in the prior year redundancy reported for 2020 as compared to 2019.

We account for income taxes in accordance with the Financial Accounting Standards Board (“FASB”) guidance, which requires, among other things, the separate recognition of deferred tax assets and deferred tax liabilities.

Such deferred tax assets and deferred tax liabilities represent the tax effect of temporary differences between financial reporting and tax reporting measured at tax rates enacted at the time the deferred tax asset or liability is recorded.

A valuation allowance must be established for deferred tax assets if it is “more likely than not” that all or a portion may be unrealized.

Our judgment is required in determining an appropriate valuation allowance.

At each financial reporting date, we assess the adequacy of the valuation allowance by evaluating each of our deferred tax assets based on the following:

• the types of temporary differences that created the deferred tax asset;

• the amount of taxes paid in prior periods and available for a carry-back claim;

• the tax rate at which the deferred tax assets will likely be utilized in the future;

• the forecasted future taxable income, and therefore, likely future deduction of the deferred tax item;

• the implementation of tax planning strategies to recover those deferred tax assets;

• any significant other issues impacting the likely realization of the benefit of the temporary differences.

Although realization is not assured, we believe it is more likely than not that the deferred tax assets will be realized.

We, like other companies, frequently face challenges from tax authorities regarding the amount of taxes due.

These challenges include questions regarding the timing and amount of deductions that we have taken on our tax returns.

In evaluating any additional tax liability associated with various positions taken in our tax return filings, we record additional liabilities for potential adverse tax outcomes.

Based on our evaluation of our tax positions, we believe we have appropriately accrued for uncertain tax benefits, as required by the applicable guidance.

To the extent we prevail in matters we have accrued for, our future effective tax rate would be reduced and net income would increase.

If we are required to pay more than accrued, our future effective tax rate would increase and net income would decrease.

Our effective tax rate and net income in any given future period could be materially impacted.

In the ordinary course of business, we are regularly audited by federal and other tax authorities, and from time to time, these audits result in proposed assessments.

We believe our tax positions comply with applicable tax law, and we intend to defend our positions vigorously through the federal, state and local, and foreign appeals processes.

We believe we have

adequately provided for any reasonably foreseeable outcome related to these matters.

Accordingly, although their ultimate resolution may require additional tax payments, we do not anticipate any material impact on our results of operations or financial condition from these matters.

For additional information, see Note 8, “Income Taxes,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

The 2022 variance to total net incurred medical claims, as reported of 0.6% was more than the 2021 percentage of (0.8)%.

This was primarily driven by the fact that the change in prior year redundancy reported for 2022 as compared to 2021 increased, whereas the change in the prior year redundancy reported for 2021 as compared to 2020 decreased.

Goodwill and Other Intangible Assets

Our consolidated goodwill at December 31, 2022 was $24,383 and other intangible assets were $10,315.

The sum of goodwill and other intangible assets represented 33.8% of our total consolidated assets and 95.6% of our consolidated shareholders’ equity at December 31, 2022.

Our consolidated goodwill and other intangible assets at December 31, 2023 were $35,590, and represented 32.7% of our total consolidated assets and 90.5% of our consolidated shareholders’ equity at December 31, 2023.

We follow FASB guidance for business combinations and goodwill and other intangible assets, which specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill.

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If estimated fair values are less than the carrying values of goodwill and other intangibles with indefinite lives in future annual impairment tests, or if significant impairment indicators are noted relative to other intangible assets subject to amortization, we may be required to record impairment losses against future income.

For additional information, see Note 3, “Business Acquisitions” and Note 10, “Goodwill and Other Intangible Assets,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

For additional information, see Note 3, “Business Acquisitions and Divestitures,” and Note 10, “Goodwill and Other Intangible Assets,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Current and long-term marketable investment securities were $30,719 at December 31, 2023 and represented 28.2% of our total consolidated assets at December 31, 2023.

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The weighted-average credit rating of these securities was “A” as of December 31, 2023.

Included in this balance are investments in fixed maturity securities of states, municipalities and political subdivisions of $890 that are guaranteed by third parties.

With the exception of 16 securities with a fair value of $9,

these securities are all investment-grade and carry a weighted-average credit rating of “AA” as of December 31, 2022.

Included in this balance are investments in fixed maturity securities of states, municipalities and political subdivisions and asset-backed assets of $993 and $0, respectively, that are guaranteed by third parties.

exception of 17 securities with a fair value of $9, these securities are all investment-grade and carry a weighted-average credit rating of “AA” as of December 31, 2023.

The securities are guaranteed by a number of different guarantors, and we do not have any material exposure to any single guarantor, neither indirectly through the guarantees, nor directly through investment in the guarantor.

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Our Level III securities primarily consisted of certain corporate securities and equity securities for which observable inputs were not always available and the fair values of these securities were estimated using inputs including, but not limited to, prepayment speeds, credit spreads, default rates and benchmark yields.

For additional information, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” and Note 2, “Basis of Presentation and Significant Accounting Policies,” Note 5, “Investments,” and Note 7, “Fair Value,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Retirement Benefits

Pension Benefits

We sponsor defined benefit pension plans for some of our employees.

These plans are accounted for in accordance with FASB guidance for retirement benefits, which requires that amounts recognized in financial statements be determined on an actuarial basis.

As permitted by the guidance, we calculate the value of plan assets as described below.

Further, the difference between our expected rate of return and the actual performance of plan assets, as well as certain changes in pension liabilities, are amortized over future periods.

An important factor in determining our pension expense is the assumption for expected long-term return on plan assets.

As of our December 31, 2022 measurement date, we selected a weighted-average long-term rate of return on plan assets of 6.58%.

We use a total portfolio return analysis in the development of our assumption.

Factors such as past market performance, the long-term relationship between fixed maturity and equity securities, interest rates, inflation and asset allocations are considered in the assumption.

The assumption includes an estimate of the additional return expected from active management of the investment portfolio.

Peer data and an average of historical returns are also reviewed for appropriateness of the selected assumption.

We believe our assumption of future returns is reasonable.

However, if we lower our expected long-term return on plan assets, future contributions to the pension plan and pension expense would likely increase.

This assumed long-term rate of return on assets is applied to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over three years, producing the expected return on plan assets that is

included in the determination of pension expense.

We apply a corridor approach to amortize unrecognized actuarial gains or losses.

Under this approach, only accumulated net actuarial gains or losses in excess of 10% of the greater of the projected benefit obligation or the fair value of plan assets are amortized over the average remaining service or lifetime of the workforce as a component of pension expense.

The net deferral of past asset gains or losses affects the calculated value of plan assets and, ultimately, future pension expense.

The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year based on our most recent measurement date.

We use the annual spot rate approach for setting our discount rate.

Under the spot rate approach, individual spot rates from a full yield curve of published rates are used to discount each plan’s cash flows to determine the plan’s obligation.

At the December 31, 2022 measurement date, the weighted-average discount rate under the annual spot rate approach was 5.18%, compared to 2.70% at the December 31, 2021 measurement date.

The net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, have been deferred and amortized as a component of pension expense in accordance with FASB guidance.

In managing the plan assets, our objective is to be a responsible fiduciary while minimizing financial risk.

Plan assets include a diversified mix of equity securities, investment grade fixed maturity securities and other types of investments across a range of sectors and levels of capitalization to maximize long-term return for a prudent level of risk.

In addition to producing a reasonable return, the investment strategy seeks to minimize the volatility in our expense and cash flow.

What changed 10-K

Item 7. Management’s Discussion and Analysis